Wednesday, October 20, 2004

The Mind of Greenspan and the Coming WWIII,

In my previous post, I mentioned how Japanification was an unlikely scenario for reasons both structural and cultural. However to give them their due, the globalist neoliberal and neoconservative movements that championed Japanification did have a plan to make it work. This plan was built upon two central concepts.

The first was that the American tendency to save at unsustainably low rates could be reversed as a first step toward creating a liquidity sink. This would require two essential ingredients. The ingredients were the proposed privatization of Social Security and Medical Health Savings accounts. The real reason why Greenspan favors Bush over Kerry, is that Greenspan understands that only in the creation of forced savings accounts can a liquidity sink of sufficient proportion be created to absorb future injections of liquidity or drops in demand for US debt.

The reason why this is necessary is that Greenspan has already tried once, and failed, to create a Japanification scenario. If you examine the relationship between the Fed Funds rate and the inflation adjust bbl price of oil you can see that in 2003 the historic correlation between the two was broken - a relationship that had been in place since the move off the gold standard.

This was in essence the thinking behind Greenspan's now infamous testimony to Congress promoting ARM's or Adjust Rate Mortgages. At the time, and still presently, many observers including yours truly scratched their heads as to why a Fed Chief would suggest that people forgo fixed rate mortgages at a time when we were at historic forty year low interest rates. The reasoning behind it was that Greenspan was trying to encourage demand that would sustain a real estate inflation bubble.

You see when you purchase a fixed rate mortgage, the bank takes the long term risk of inflation. For this reason they charge a premium in the form usually of a higher rate of interest. When you obtain an ARM it is you and not the creditor that takes the front-line risk of inflation and so you get a lower rate - at the risk of rate increases later on.

In a Japanification scenario where Greenspan would attempt to flood the market with dollars while attempting to prevent inflation using a liquidity trap he would need an asset class to sink excess circulatory dollars into. ARM's make mortgages more affordable since if assuming interest rates remain low you pay a smaller debt service over time compared to a fixed rate mortgage. Alternatively you can afford to service the debt of a larger house payment monthly on the same income. By using his best nod, nod, wink signalling, Greenspan was attempting to signal home-buyers and the markets that it was okay to take on ARM's because it was defacto Fed Policy in order to maintain or even lower rates from the present level into the ongoing future.

If it had worked it would have caused home prices to skyrocket from their present levels. Indeed given his comments about a lack of a distortion in the housing market and the comments as to how well Americans "manage their debt" we can see that Greenspan would like to see this approach succeed still. If we had seen a continuing escalation and sustaining of home prices Greenspan would have used it as his anchor point to reinflate the US economy.

However it didn't work. It didn't work because you finance home-buying based upon income. Because of offshoring wages have been at best slowly increasing at far less than the rate of inflation or in fact stagnant. This meant that despite all the chicanery of the Federal Reserve that the housing market itself failed to be sufficient as a liquidity sink in order to create the Japanification scenario.

Given that we know now in historical terms that the real estate market bubble failed to absorb enough liquidity to prevent a break from inflation-adjusted oil and the Fed Funds rate we can see why the original plan of neoconservative and neoliberal, that is to say the post-modern political movements, were doomed to failure. It is not a matter of speculation, they attempted it once and in quite direct terms it failed.

But to give it its due we should basically state what the plan was. The plan was to smoothly transition from the US being the currency of the petro-trade to the Euro. Just as previously countries exported to the US in order to get dollars to buy oil, now the US like other countries would export to Europe in order to get Euros to buy oil - but only on more favorable terms. The more favorable terms and the reason why the postmodern political movements expected to avoid an economic shock from a drop in the demand for US debt was the US military.

While the US had been the economic and military superpower, the first Gulf War had introduced the need to transition to a new paradigm. In the new proposed globalist paradigm the US would remain the paramount military power and its military-industrial base would be maintained by continued debt purchases of Treasuries by other countries. The new economic center of the globe would then be Europe, and Europe would see its livings standards deteriorate in exchange for financing the world's economic development. In the first Gulf War it was America that provided the muscle and other countries that provided the cash to fund it.

This was to be the new globalist paradigm for their "new world order".

On the domestic side in order to finance the switchover between economic regimes, between a dollar based petro-currency to a euro based one, there would have to be a large liquidity injection and that would require a liquidity sink in order to soak up otherwise inflationary and price-raising circulatory dollars. Hence Greenspan's support past and present for Bush. If it had worked the correlation between the Fed Funds rate and the price bbl of inflation-ajusted oil would not have been broken.

What history proved was that the structural market pricing of real estate prices, interest rates, and incomes proved insufficient to absorb enough of the new money supply. In order to try again, two things would be needed. The first is as we mentioned a government mandated force savings program. The fact that there would be gross inequities to the savings program would be secondary to the consideration that it would be a vast liquidity sink.

Right now Social Security is not a savings program. Dollars go into a revolving door and they go out the same day to pay for current entitlement benefits seniors are receiving. Currently more dollars go into Social Security than go out for entitlement payments, but these are spent elsewhere right now this moment by being added to the General Fund expenses. Ironically these are not counted against the budget deficit - as it turns out if the budget were adjusted by the amount of money drawn from the "Social Security surplus" it would be another 200 billion in the red. Later on when Social Security pays out more than it takes it, not only will this 200 billion not be available but General Funds will have to be diverted to maintain the balance.

The important point to grasp here is that Social Security is not a savings program and therefore can not act as a liquidity sink - unless it is converted into private retirement savings accounts.

The same logic applies essentially to healthcare savings accounts.

In response to my previous post a reader, Ed, astutely notes another difference between the US and Japan.

At 10/20/2004 10:39:24 AM, Ed Tayter said...
Thanks for the post. I now understand why you don't think that Japanification is likely here, and I agree with you. What do you think that the likely scenario is?

The only thing stopping an immediate petro-currency switch to euros is the US military. Bushco hoped that the lesson of Iraq would be allow petro-euros and your government will be otherthrown. Saddam switched to euro pricing in 2002 the US invaded in 2003. This is the point where things stopped going according to Buschco's plans.

Iraq was not easy or cheap to occupy. However, even with the slow weakening of the American military in Iraq, I don't think that there are currently many leaders of oil exporting countries who are willing to risk the US intervention that a euro-switch would provoke. Let the military weaken more and some minds may be changed.

The US commitment to militarism also makes a Japanification scenario considerably less likely in America. The US does not need failing businesses and opaque banking regulation to absorb excess liquidity; we have the military. The military-industrial complex can absorb any excess liquidity that American tax payers want to throw at it. I see ever increasing militarization as a much more likely outcome than Japanification, based on the cultural mores of us Americans.

Having an enormous military makes it much more likely that we will take the military solution when it is presented. Whether the military solution works or not, is an entirely different question. The US deflating its way to more oil is alot less likely to occur than the US trying to militarily sieze the remaining oil supplies.

Typically empires just don't fall apart though it may seem that way. What happens is that an unsustainable situation requires maintenance by some sort of expansion to refinance a net negative status quo. This expansion leads to over-reach which trades off a temporary injection of commodities in return for a deterioration of the structural economic infrastructure. At the point where the negative returns deteriorate the economic infrastructure beyond minimal cohesiveness, the economic infrastructure of the empire disintegrates and the empire or hegemon seems to suddenly and without "apparent" warning collapses within a short period of time - or fragments into smaller viable economic units.

As the empire or hegemon attempts to maintain its past cost-structure with its attendent invested social relationship network it shifts to progressively more cannibalistic forms of economic activity that use up the capital asset and labor pool value that could be used to generate new growth. The consumption of the "seed corn" of tommorow to feed the hunger of today in order to maintain the social order of yesterday is the classic symptom of the peak of an empire or hegemon right before its decline.

If the US finds that it cannot transition smoothly to a euro-based petro-currency while maintaining its net negative consumption it will likely go to war. The alternative or potentially complement to the forced savings liquidity sink is the destruction of value created by the military-industrial complex.

Most people think money is pieces of paper or a bit more abstractly zeroes and ones in a computer account. However this is patently not true. Try cutting out a few pieces of paper from stock and see if anyone will give you valuable for it. Currency is legal tender only if participants are willing to trade it for tangible goods and services. This in econ-speak is called "economic activity".

So the fact that little pieces of paper pile up in a leather billfold or the bits in a digital computer are adjusted upwarded does not actually mean that the monetary supply actually increased. This is something that is difficult for most people to grasp. If you print out dollars and people go out and spend and use them, then you run into the trouble of price inflation - because that liquidity was translated into ongoing "economic activity". You would have the problem of the same of everything else and more little pieces of paper, which just means that the pieces of paper are individually considered worth less - classic inflation.

You can avoid this problem while still having the freedom to inject liquidity into the monetary supply - printing out and dumping new pieces of paper into the economy or adjusting some digital bits upward - if you can have a source of "dead money". The little pieces of paper are still there but as long as someone is hoarding them away or they just push up the nominal prices of a select asset class like real estate then they aren't considered "in circulation". Which means they aren't generating ongoing "economic activity". Which means you aren't generating price-inflation, just specific asset-inflation.

So you can push out more pieces of paper, get the temporary one time hit of them hitting the street, and then see them sucked into an upward asset value spiral that takes them off the street. This has a pro side and a con side. It means that the economy is on lifesupport. By definition "dead money" that doesn't generate self-sustaining economic activity won't revive the economy of buying, selling, and trading goods and services. On the other hand you can dump more money in any time you want, and it won't destroy the underlying market pricing of most economic transactions and the purchasing power of your currency.

One way to do this is to have a culture and regulatory sustem that acts as a money trap - continually sucking up more currency but doing nothing productive with it. This is the route of Japanification and it worked in Japan because for social reasons the Japanese were willing to tolerate a lot of permanently non-performing assets and were willing to sock away ever more money into their savings accounts that had practically zero return rates of interest - coupled with price deflation because the economy was net hemmoraging money in order to compensate for the bubble run-up in the eighties.

Attempting to create the American version of this is what Greenspan's solution was to the end of the nineties. However he and the free trade/ neoliberal market deregulator/ globalist gang failed because the culture and economic structure of America was simply too different. I'm sure they will try again with a forced savings program but for similar reasons that is likely to be insufficient.

So what is the last resort? Well as my reader Ed pointed out America has a large military-industrial complex. Like in the eighties, as long as we have someone willing to buy our debt this can be used to put continued fiscal stimulus into the economy to keep it on life support. It is also an excellent monetary sink and liquidity trap. By definition, most of the uses of military money meets the definition of "dead money" - that is money expended without seeing any productive return for the investment. Destructive return yes, but not productive return.

As a matter of fact the only "productive" return that a military has is in seizing and annexing productive resources and commodities from others. A military fed a lot of liquidity that would turn it into "dead money" and use some of it to bring in new commodities to shore up the otherwise unsustainable internal consumption of the US economy is probably going to be their next solution. It is an almost certainty that at least in the short run that the military-industrial complex - responsible for over two thirds of a trillion in government spending last year alone - would provide a sufficiently large monetary sink in order to pump out and spend dollars without producing purchasing power declines associated with price-inflation.

Of course in order to keep the money "dead" it will have to using the assets it purchases with the liquidity provided by the Fed. That means more wars. This is the ultimate reason why the Rumsfeld doctrine of lighter, faster, etc. has not been rejected for the US military. The tool of the military in economic terms requires many small frequent wars where large amounts of material are used up - so that the military can purchase more to prop up aggregate demand but at the same time act as a dead money sink.

This was why Rumsfeld was brought on in the first place, and why he in perpetuating this theory was only carrying out the legacy of the Clinton Administration which had already come to the same conclusion and had been retooling the military toward this end. Clinton was not above using the military as an economic sink for dead money. As Al Franken noted to Wolfowitz, Rumsfeld triumphed in Afghanistan using Clinton's military.

Rumsfeld's job however was to expand the use of the military-industrial complex as an active role in order to justify continued purchases of US debt moving toward and after a euro petro-currency transition. To justify paying the US for being the world's policeman the US was going to have to keep up a litany of continuously justified and foreign subsidized wars. The fact that we were going to hit bad men running other countries was just incidental, the superficial justification for the transition of the US to a miliary based economic engine.

Whereas Clinton had merely prepared for this enventuality, Rumsfeld's job would to implement it. This is why the Bush Administration kept and expanded the corrupt and pointlessly ineffective by all reports "missile defense shield". The purpose was of course rhetorical but it had an additional dead money sink property - it allowed the Fed to introduce new pieces of paper or revise upward digital bit values without generating sustained economic activity. I mean can you think of anything more useless and less likely to feed back into the economy than a $100 billion boondoogle "missile shield" that by all technical tests and expert estimates probably cannot work?

This is of course why Greenspan is supporting Bush over Kerry. It's not that he likes Bush or the Republicans, but the "ownership society" policies of the Republicans while overwhelming helping those who "have" in our society also create an opportunity for Greenspan to restore his control over monetary supply. In addition Greenspan understands that Bush is for political reasons more likely in order to engage in wars and otherwise use the military-industrial base for fiscal stimulus - generating another liquidity trap that Greenspan can use to create dead money. Greenspan needs this dead money so he can buy his way out the current economic downturn without a) having to undergo painful structural economic changes that would create social upheaval and b) destroying US purchasing power.

Greenspan is probably aware of the neoconservative and neoliberal agenda of using the military to justify debt purchases and bring in new commodity supplies to the market place on terms favorable to the US, and considers Bush more likely to promote that end than a Kerry Administration which might possible care about stuff like "social justice" and scruple at wasting large numbers of US lives just to stimulate the economy.

Of course this same logic leads us to conclude that the above path would be a direct step toward engaging in WWIII but hey you can't make an ommelette without breaking a few eggs right? Certainly I've broken a few eggs in my time making ommelettes so why not right? You save what you can.

Of course the above logic is premised on an assumption of despair. The fundamental difference between me and Greenspan is not that I am more scrupulous than him but that I have still the hope and expectation of the potential for a brighter American future. The logic leading to Armageddon is the logic of the acceptance of failure, the unwillingness to change, and the calculus of hopelessness.

I do believe that the ends justify the means. I however also believe that if you are justifying means by ends then by golly you had better deliver since you can't very well claim that you had meant well. I also think that if you are going to justify the means by the ends that you might as well play for the prize. What is the point in being ruthless and unscrupulous if you are going to just settle for a future that is ... depressing? You might as well shoot for the stars while you're at it, because nothing less than extraordinary ends can justify extreme measures.

This post is dedicated to my late father. I disagreed with you then but I see how right you were now. I didn't know how little I esteemed you until it was too late to make ammends. The only thing now that I can do is keep the promise I made to you right before the end.


At October 20, 2004 at 5:32 PM, Anonymous Anonymous said...

Oldman says,

"Greenspan needs this dead money so he can buy his way out the current economic downturn without a) having to undergo painful structural economic changes that would create social upheaval and b) destroying US purchasing power."

I would very much like to know how Greenspan thinks he can do this, if indeed this is his thinking. I would also, moreover, like to know how Greenspan thinks? He was once an Ayn Rand libertarian, extolling the vitues of "hard currency" and the Gold standard.

Now he sometimes seems to me to be more like a simple-minded Keynesian monetarist, believing somehow that he can paper-over any problem. Other times he hints at believing in long-wave market cycles. But I cannot find reconciliation between the two views.

Definitely he seems to me to believe that it is not nice to fool big market players any more than it is to try to fool Mother Nature.

I don't see him standing up for the interests of common people. E.g. Where is his plan to do other than screw people who have bought into untenable entitlement promises for their retirements and/or social security, etc.? Maybe I've missed something. Anyone willing to help me develop a more charitable view of AG? Dave Iverson

At October 20, 2004 at 5:53 PM, Blogger Ed Tayter said...

What's the alternative? I have been thinking about this problem for quite some time and don't see any good answers. Every other empire in a similar position has taken the military option, and it has failed them. It saddens me to see the American republic degenerate into just another empire, justifying War is Peace. The military-industrial complex as a liquidity sink was described in Orwell's 1984 when he quotes from Goldstein's heretical writings. Scary to see it playing out in real life.

At October 20, 2004 at 6:17 PM, Blogger morinao said...

This is a fascinating series of posts. If I understand correctly, you are saying that to switch to a euro-denominated petrocurrency the U.S. economy has to cough up X dollars. Societal factors prevent us from dipping into extant currency by increasing taxes or gas prices by X dollars. Instead, Greenspan would like to convince consumers to throw X of their own dollars down a liquidity trap, effectively removing those dollars from the economy and allowing him to replace them by printing X new dollars that he can spend on oil. The inflation associated with printing this additional currency is quarantined to whatever asset class gets designated "dead money".

Here's my question. Homeowners divert a fraction of their consumable paychecks to their mortgages, so I can see why housing could act as a liquidity sink, assuming that banks agree to lend out fewer dollars than mortgagers pay in. But why would the military-industrial complex qualify as "dead money"? Consumers give tax dollars to the government, which pass those dollars to defense contractors, which use those dollars to pay their employees and suppliers, who are themselves consumers, which means no currency ever gets removed from circulation, right? The only way to skim off dollars from this cycle is for the government to run budget surpluses. (I suppose that bloated defense spending might provide the government cover to raise taxes, but I think you're saying something else.)

At October 20, 2004 at 7:13 PM, Blogger Oldman said...

It's basic supply and demand. Given a finite supply of defense related materials - bombs, armor, bullets, machines, etc. as you throw more money at it the price goes up. During a war however these items are consumed and the price tag value in them is removed from economic activity. There is no salvageable value from depleted uranium shell dust.

You're correct that in putting money into the military-industrial complex the labor component generates some economic activity. To describe the military-industrial complex as a liquidity sink is to generalize. However the items bid up in price from defense contractors and then consumed in usage is dead money. That's why for an armed force to act as a liquidity trap it has to be actively fighting wars - or at least engaging in activity that indicates a high rate of the usage of consumables and equipment which suggests combat activity.

At October 20, 2004 at 7:13 PM, Blogger Oldman said...

This comment has been removed by a blog administrator.

At October 20, 2004 at 7:13 PM, Blogger Oldman said...

This comment has been removed by a blog administrator.

At October 20, 2004 at 7:19 PM, Blogger Oldman said...

Greenspan still believes in hard currency and commodity backed currencies. It's just that we have been on the oil-standard for the last thirty years and not the gold standard. If you look at my previous post and then feed the inflation adjusted oil bbl price in and excel plot that against the Fed Funds historical rates you can see that after 1973 - after the gold standard is abandoned - that the Fed Funds and the oil inflation adjusted price bbl correlate almost exactly.

If you send me an email I can email you the chart. Mike typed it up for me, something for which I will give him full credit for once I figure out how to get it on my site.

But it's very clear once you see the chart. There is no mistaking it - or how that thirty year oil standard for currency was shattered in 2003.

So Greenspan never changed his mind. He's been on the oil-standard the whole time. Now he's lost control and he knows it, and this liquidity trap thing is his way to try to relink the currency to the commodity.

At October 20, 2004 at 7:23 PM, Blogger Oldman said...

Btw one could alternatively use a massive space exploration program or a huge infrastructure reconstruction program as a sink for dead money. The infrastructure program would generate some return where the only return the space exploration program would return would be intangible or in the far future. However the dynamics of the American psyche and the need to refinance the debt based unsustainable consumption would require a new influx of commodity supplies, so this favors the military solution.

At October 20, 2004 at 9:18 PM, Anonymous Anonymous said...

In the final century of Rome's western empire, defense spending accounting for over 80% of its budget and the empire still rotted away like a beached whale.

Wars on any large scale are extremely demanding and pouring money down the black hole called DoD will not really help things. It will only IMO accelerate our demise as a nation despite what Greenspan may think.

Its pretty much a maxim that any country going on a war bender will pay horribly for it.

Britian tried it in WW1, before entering the fray it was a weak and decaying empire and its entry into the european war bankrupted it within 2 or so years. And we had to bail them out.

Afterwards their demise as a empire was assured.

We won't get as lucky a Britain or even Kaiser's Germany. Sooner or later we'll step on the wrong toes and we'll see a mushroom cloud in D.C. which will end our imperial forays abruptly when all the warmongers are dead.

The country is still salvageable but WWIII will doom it.


At October 21, 2004 at 2:31 AM, Anonymous Anonymous said...

I've said for a long time, in conversation/comments to Stirling's posts that I didn't think that Japanification was a stable solution set for the US - however my reasoning was loose and based mainly on the trade deficit/savings rate. You've laid out the logic of this much better than I was ever able to and taken it further. Bravo! Now I'm the one looking at your recent work with my head whirling. Lots to think on.

In a sense everything right now is in abeyance for the election and the post-election BS but I'll be returning to some of these questions in a while, inspired by the work you've done. I think I see the outlines of a route out - but the problem with solutions is not finding solutions, it is getting the political will and power to have them implemented. After the election it might be worth talking about that in more detail.


At October 21, 2004 at 8:17 AM, Blogger Grand Moff Texan said...

Two links of interest:

One, relating to Oldman's concerns on voter fraud, an adult steps in. I didn't know we had any more of those.

Two, speaking of WWIII! Who knew Eisenhower was a prophet? [caution: video]

At October 21, 2004 at 11:12 AM, Anonymous Anonymous said...

Man, I can think of any number of things I'd rather see money sunk into rather than endless wars or endless tract housing. It would seem to me that the best sinks (from the point of view of my three-year-old son's future) would be projects that offer very little return in the 5-to-10 year time frame, but could be highly rewarding down the line. I'm thinking specifically of:

* A campaign to build 10,000 new, state-of-the-art schools

* Research into constructing orbiting solar power satellites

* Laying down a high-speed rail network

* Erecting three or four energy efficiency demonstration cities of 100,000 residents each

* Starting a massive carbon sequestration program

Each of these ideas would be expensive and show very little in the way of short-term results. But like the 1960s space program, each would reap massive long-term benefits.


At October 21, 2004 at 2:54 PM, Anonymous Anonymous said...

Thinking about inflation and the liquidity trap, from one perspective (perhaps not the economist's one) it seems that inflation is a devaluation of the note or currency, following this thought, spending on military hardware may be the most inflationary way to spend. Money that has gone to weaponry is totally devalued in the sense that nothing productive results from the investment. Perhaps avoiding inflation requires more than a simple sink hole for dollars. A tractor or tool as an investment is able to produce a result being a means to production.
I also wonder if the euro should become the oil denominated currency, what incentive would remain for large central bank support of US debt. Perhaps central banks would divest themselves of US debt, then we would need a huge sink hole.

At October 21, 2004 at 3:30 PM, Anonymous Anonymous said...

OK I don't get it. Maybe I'm just stupid, or not well schooled in the stuff of international finance. Why would AG want to do this, as argued by Oldman?

"In a Japanification scenario where Greenspan would attempt to flood the market with dollars while attempting to prevent inflation using a liquidity trap he would need an asset class to sink excess circulatory dollars into."

In the first place, why flood the market at all? In the second place, why, would AG want to hype home prices, or stocks, or anything else to create such a sink? Maybe the answer is as simple as, 'I'm in trouble, the old game has played out and now I'll do anything at all to try to postpone the day of reckoning beyond my lifespan.' But I can't quite buy that. So, Why? And in particular how would AG believe that by doing this he'd be able to repeg the dollar to oil? Dave iverson

At October 21, 2004 at 8:10 PM, Blogger Mickslam said...

-Erecting three or four energy efficiency demonstration cities of 100,000 residents each - not bad

How about simply moving en mass to a new energy source? Just about any of them would be appropriate, wind, solar hydrogen. All of them would involve a massive finacial commitment to build infrastructure with little short term benefit. Note for each of them, we require updating our failing electical infrastructure - this would be more beneficial inthe short term, but at least we get something out of it.

I used to be a huge fan of Bucky Fuller. However, I came to the conclusion that a non-market driven economy would never work back in the late 80's. This doesn't really impact his larger point, that we have a critical path that we must undertake, otherwise we will all be broke. That is either we are all rich, or we will all be broke. I thought this idea was equally absurd as communism in '94, but what looked so dated back then seems to have much more force today.

Every minute a person spends in non-productive work is a minute forever lost to humanity, and just living costs something. There are billions of people for all practical purposes just sitting aroung right now - if you measure it by their productivity. But they are still eating and living, consuming but putting nothing back. The next Newton is cleaning s*** with his hands in India, the next Edison just killed cause she was a baby girl in China, just so the immediate family can survive.

When there is such a huge difference in income and standard of living across the world, there is going to be little hope for progress. Why? I think its because we really have nowhere else to put the productivity. How much is my life different from Buffets? He could buy anything he wants, but there is not that much more to buy. There is almost nothing that he has or can have that improves his life, except maybe the ability to travel slightly faster in a jet than I can. Our lives are not as different as mine is from that really poor guy in Brazil.

Almost all of the increased productivity of the world over the next 50 years will be directed to raising the standard of living for the abject poor, and ours will likely go down a little - unless we can find a way to increase the amount of energy we each use without
breaking the bank'. As per oldmans post and reasoning, we don't seem to have much choice. We're going to be forced down this path.

However, it might be possible to take the energy tax (Thats what I call the price we currently pay for energy. I feel its closer to a tax because we expend human work on really nothing that improves our standard of living, only on the thing that powers our standard of living, which is very different. Think about it) and just apply it to our common 'bottom line' if we use another source of energy. This is where the oil lovers get way, way off track. There is no way that extraction of oil, no matter how inexpensive, can compete with the ever declining price of improved technology. By focusing on this oil economy for the last 50 years, we lost incredibly valuable time. Even though we can make up those 5 decades of research in 4-8 years today, those years are going to seem very precious to us. Yes, green tech costs more now, but its a one time charge - this is the real wealth of man, increased knowledge and doing the same work with less stuff - or doing the same work and getting more.

New energy is the only way I see out of this mess. It solves several problems at once, and might even reduce pollution as a side benefit. Remember, oil prices are going up for China too, so its possible that old tech might prove to be too expensive for them in the short run too. At some point, its just going to be too expensive to run dirty.

Unfortuately, I don't think we have anything approaching the national will or inclination to do something like this. It doens't seem to register that this crisis has finally hit, and we now must address the issue. It will be opposed violently by 'old oil', if you don't mind my stealing a phrase from the oilmen and turning it on them. (What are we going to call the oil equivalent to the 'gold bugs'?) These are people who actually belive that wars help economies because they destroy things that might be rebuilt. It's just unbelivable that they would rather do this than build stuff for people who need these things in the first place.

At October 22, 2004 at 12:44 AM, Anonymous Anonymous said...


I have some difficulty with the concept of "dead money sink", but maybe it is just a matter of terminology. The only way to "sink" money in the aggregate (short of destroying it) is to put it in a bank vault and not take it out. Otherwise it will continue circulating. Making one circle through an unproductive venture will just mean one wasted opportunity. You have to "reinvest" in the dead circle, but maybe that's what you are talking about -- i.e. constantly turning over houses at rising prices, buying/selling increasing volumes of financial instruments in the stock market, constantly producing & purchasing new weapons, etc. To the extent that physical production is involved, the product has to be used up (e.g. bombs and artillery shells delivered to targets).

Did I get this part right?

But what would be the point? Is it not to reduce US imports, and to that extent the population's consumption? I can see how that is "helped" by diverting income, but the proposed "ventures" are still "real", resource-consuming (most notably oil) activities. What "problem" would resource-consuming dead activities address that equally resource-consuming useful activities won't?

Help me out guys, I'm not getting something.

At October 24, 2004 at 6:25 AM, Anonymous Anonymous said...

Oldman, I have a question, taking this as the lead into the question.
"Social Security surplus" it would be another 200 billion in the red."

Back durning the clinton years I put togeather some numbers and came up with 3.5 trillion Dollars of federal debt plus apx. 3.5 trillion Dollars of monies taken from social securty, by the federal government, meaning a total of 7 trillion Dollars of Federal Debt.

Then, in 2001 posted on the Federal government debt chart, they listed 7.5 trillion dollars as the fed debt.

What happened? Did they add the two mumbers togeather? ie. 3.5 plus 3.5 getting 7 plus trillion dollars in debt.

If, they did this it would mean that they suddenly became transparent and extremly truthful, which I find hard to beleave, because it makes Bush look very bad, ie. their new boss.

So, what can you tell me about this?

Jim Coomes

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